Money markets paid nothing. The dividend yield for the S&P 500 Index was 2%, and the 10-Year Treasury yield was stuck between 2%-3%.

The post-Covid era seems ripe for a Yogi-ism since economists and policymakers have been so wrong about the path of the economy and inflation. Yes, inflation is finally on a downward trend, but it has proven far stickier than the Federal Reserve and most economists predicted and remains above the Fed’s 2% target.

During his spring break, Johnson Financial Group Portfolio Manager Brian Schaefer had the time to read “A Gentleman in Moscow,” which got him thinking about the how the current market moves could impact the American experiment. In this investment commentary, Schaefer discusses the MOVE and VIX indexes and what they might say about the markets.

Given that (1) investors have benefitted from a market environment that reliably produced a source of positive returns from a 60/40 mix, and (2) we’ve just completed the best period for that mix in nearly 70 years of tracking, why would an investor want to consider a change?

Just over a year since the COVID-19 virus began spreading around the globe and significant portions of our economy shut down, today the U.S. is solidly on the road to recovery. 

In a year that offered a pandemic and an election as reasons for investors to bail on risky assets, 2020 turned out to be a great year for those that stayed the course. A 60/40 portfolio of diversified stocks and bonds increased by a double-digit percentage, exceeding expectations.

We believe that bond investors should use the benefits of a stable rate environment to buy yield on the short to intermediate part of the yield curve. Stock investors have a more complicated task in 2019, albeit less so now that the Fed has indicated it is not hiking interest rates and will end the reduction in its balance sheet assets by October.

With unemployment below 4% (considered full employment by the Fed) and wage inflation pressure still positive, the Fed will want to continue to remove the stimulus from its policy. This means continuing to hike interest rates, albeit it at a reduced pace from the last two years.

Bond investors are feeling a little shell-shocked after the rise in interest rates in November.

Last week, the Federal Reserve released some information about the U.S. economy’s capacity utilization and industrial production (these numbers are released together).